Accounting policy is one of the policies that we treat like a red-headed stepchild. We consider it to be a necessary evil, as a rule that is compulsory by law, which if we do not have, may give rise to a fine.

How is accounting policy prepared in many cases? We download a template from the Internet, write the name of the company on it, print it and reassure ourselves that we have fulfilled our legal obligation. It has, however, many pitfalls, for example, it is not the latest version we have come across, not all the changes are made in the policy within 90 days, etc.

Is this the role of the accounting policy? The answer is of course not.

Why do we need accounting policy and how to make it?

The accounting policy is the set of methods, tools and procedures for implementing the Accounting Act that have an impact on the income, assets and finances of an enterprise, affecting the business outcome. The accounting policy contains the methods, tools, specific rules and regulations necessary for the implementation of the Accounting Act for a particular enterprise, which, in their effects, have an impact on the income, assets and finances of that particular enterprise.

The accounting policy is therefore a series of well-founded decisions. The legal representative of the enterprise is responsible for preparing and modifying the accounting policy. The Accounting Act provides a framework for the accounting policy in a way that, on the one hand, it makes it the responsibility of the enterprise to develop an internal information system and, on the other hand, offers alternatives to many issues in financial accounting, bringing the enterprise into a decision-making position. The accounting policy is a set of accounting policies, valuation procedures and methods that the management of a company applies in the bookkeeping and the compilation and publication of the financial statements of the company.

The accounting policy is needed for two reasons. On the one hand, based on the regulation laid down therein, it is possible to provide a true and fair view in the financial statements, and on the other hand, according to the statutory regulations, the act gives the enterprise a choice. The choice between options has an impact on the enterprise’s result, which must be taken into account in the regulation.

The accounting policy shall contain

• the regulations and procedures for taking and keeping inventory of assets and liabilities
• the regulations for the valuation of assets and liabilities
• the internal regulations relating to the costing system (depending on threshold), and
• the cash handling policy

What should be considered when preparing the accounting policy?

• it should be adapted to the company’s specifics
• it should include any decision necessary to enforce the Accounting Act
• according to the Accounting Act in force, the rules should be accurate and help to carry out the accounting tasks
• it should make the production of any information possible that is needed for those who require internal and external information
• it should be up to date
• the accounting policy for successive financial years should only be changed if necessary due to material reasons.

The key elements of the accounting policy, their changes and impact on the result of the company’s business are to be presented in the Notes on the accounts.

It is important to update the accounting policy and align it with other policies, such as the managing director’s instructions. Because of the constantly changing internal and external environment, the policy cannot be unchanged. There is a need for continuous monitoring of changes and updating. The preparation of the accounting policy is not simply for its own sake.  It should be disclosed to the employees so that its content can be checked and, where appropriate, required.

Remember, every regulation and instruction is worth however as much as is implemented of it.